Somerset County offers details on mechanics of solar energy initiative

In a Feb. 19 session at the Somerset County offices in Somerville, county officials held an “outreach” to the municipalities of Somerset County to unveil the details of the solar energy program which was announced on Jan. 26.

In his opening remarks, Freeholder Director Jack Ciattarelli said, “If you came here because you were interested, when you hear this, you will not only be interested, but excited,” as he addressed the representatives of 18 of the 21 municipalities in Somerset County in attendance. Two official from Watchung attended, Mayor Albert Ellis and Environmental Commissioner Don Pote.

The plan, closely modeled after Morris County’s recently implemented solar energy program, takes advantage of federal tax credits and state regulations on renewable energy to create an attractive package for private solar developers. The program, which involves number of complex transactions, centers on the Somerset County Improvement Authority as the main hub around which the programs principal actors revolve.

In a presentation by Stephen Pearlman, Esq. of DeCotis, FitzPatrick & Cole, the Improvement Authority plans to issue bonds to finance the solar panels. It would then enter into “licensing” agreements with municipalities in Somerset County which meet the requirements for solar panel installation. The authority will also enter into a Power Purchase Agreement, with the municipality, establishing a price per kilowatt hour for the electricity to be generated.

The Authority will then enter into a lease-purchase agreement with a solar developer selected through a competitive contracting process. The solar developer will install the panels and oversee their maintenance as well as the billing for the electricity generated. That lease-purchase agreement is structured in a way that makes the solar developer the “owner” of the solar panels for federal tax purposes, entitling it to take advantage of attractive federal solar tax credits.

As explained by Mr. Pearlman, the federal tax credit is unusual because the federal government will write the taxpayer a check for the amount of the credit shortly after the installation is complete which, he noted, “doesn’t happen too often” That attribute has the effect of accelerating the solar developer’s return on its investment.

The lease-purchase agreement also permits the solar developer to create and sell Solar Renewable Energy Certificates, commonly known as SRECs. These certificates can be purchased by the power utilities as a way to meet their state-imposed targets for investment in renewable energy. The certificates, which, according to Mr. Pearlman, currently sell at approximately $600 per megawatt hour, create another strong financial incentive for the solar developer, permitting the majority of the funds generated from sales of the solar panel-generated electricity to pay the interest on the Improvement Authority bonds.

If the program recently enacted in Morris County is any sign, the savings for municipalities should be significant. Municipalities currently pay around 15 or 16 cents per kilowatt hour for their electricity. The Morris County program will charge 10.6 cents per kilowatt hour, a 35% savings. The solar energy panels are unlikely to cover all the energy needs of a particular building, but even a 35% reduction of their usage should result in anywhere from a 5 to 20% overall energy savings over the period of the agreement.

For all concerned, the other “exciting” portion of the plan is the reduction of greenhouse emissions. The generation of one Megawatt hour of electricity generates the same emissions as 137 automobiles in the course of a year. Generation through solar power will offer significant reduction of those emissions.

Mr. Pearlman underscored the economies of scale created by creating a regional program at the county level. “Everything done here can also be done by the municipality,” he noted, but if working alone, smaller municipalities may get passed over by solar developers as not worth the time. In the Somerset County program, smaller communities will be part of the pool of projects, and will not be excluded based on size.
The municipal officials in attendance expressed enthusiasm but caution, owing no doubt to the complexity of the transactions involved. Each building or public space must go through a detailed vetting process before it can qualify. One official, identified by Ciattarelli as “Kevin” only said he’d “think about it.” Several officials in attendance, including Pote, expressed concerns about a solar developer who goes bankrupt.

Pearlman assured the gathering that provisions for a defaulting developer were in place.
In comments to the Independent Press immediately after the session, Ciattarelli said he expected that not less 50% of the municipalities will sign up for the field audits, underscoring that he wanted to make this process safe for the municipalities. “The manner in which we are going to do field audits will eliminate the risk to them. We’re here to protect them.”

Watchung Mayor Ellis sounded enthusiastic. “We’ve got some great roofs, and they’re new,” he commented, in response to a question by Ciattarelli.

“I think it’s a very interesting study and I’m excited about it because I think there’s some long term savings, given the state of New Jersey and where we are now,” the mayor noted immediately after session. “This is an unbelievable county … they’re proactive, they really are.”